The present invention relates to a method and a device in an automated exchange, in particular to an automated exchange being connected to other exchanges.
In existing automated exchange systems for continuous trading (dealer market), a simple first in first served model in the matching is commonly used. Thus, if there is a selling price, which is matched by a buying price, the two orders are matched.
To increase liquidity there are Market Makers (quoters) who are required by the exchange to continuously enter two way quotes.
The basic idea is that Market makers must have a two way quote in the market all the time. The quotes (together with ordinary orders) create a best bid and offer that is sent out as the exchange official price. The best bid or offer is used by investors when deciding about buying or selling an instrument.
However, in today""s exchanges it has become more and more common that the same financial instrument is trades at different exchanges at the same time. Furthermore, the price for the same financial instrument is not always the same at these different exchanges. However, investors are not interested in having to care about this. The investors want the best price available and demand that the exchange preferably should guarantee that it provides the best price if there is a deal. This has created a problem for investors, which have to chose the exchange at which the believe that they can obtain the best price at a particular moment.
It is an object of the present invention to overcome the problem as outlined above and to provide an automated exchange having functionality which reduces or eliminates the risk for a person entering an order into an automated exchange to get a worse price than he could have gotten at another exchange.
This object is obtained by a method and a device which automatically checks the best bid/offer from other exchanges.
In a preferred embodiment the exchange only allows a match if a better price cannot be found elsewhere. Instead, the market maker (or primary market maker) of the exchange has entered a parameter to the exchange. The parameter indicates if the market maker is prepared to give a better price, and if so how much better. If the better price is better than or equal to the price offered at the other exchange, the deal is automatically closed at the price offered at the other exchange. If the price is still not equal to the price offered at the other exchange, the incoming order is placed in the order book, but no match takes place directly. Instead, a message is sent to the market maker. The market maker can then contact the other exchange and make a deal at their offered price and send a trade report with the customer order to the order book. If a deal is not made with the other exchange the other exchange will update their price to a worse price, and matching can now take place, since no other exchange offers a better price.
In another preferred embodiment, when the other exchange offering the better price is an automated exchange, the order is automatically transferred to the exchange having the better price if this is the case, and the order is processed further at that exchange, or the exchange automatically makes a deal with the other exchange and then in turn makes a deal with the customer.
By using such method and device investors will not have to worry about getting a better price elsewhere.